Litigation Funding
- unlatchedlaw
- Jan 30
- 3 min read
Money talks. Unsurprisingly, therefore, most people stay silent when it comes to seeking justice through the court system, which is where litigation funders (LF) come in. Quite simply, they assess the merits of a case, and if the chances of success are acceptably high (typically around 60% or more), the litigation funder provides the necessary backing. In return, they usually take a portion of the damages that a court provides to the successful party in a case.
Third Party Funding (TPF) is a double edged sword. It’s a self-regulated industry with a voluntary code of conduct which players should (but are not obliged to) follow. However, as Colosseum Consulting Limited found out in 2021, non-compliance with the code or its spirit - which prohibits LF’s from influencing the conduct or substance of litigation in any way shape or form - could lead to some costly decisions (Laser Trust v CFL Finance Ltd [2021] EWHC 1404). Whilst the interest in promoting access to justice is crucial, the nature of TPF agreements can be highly onerous. With the exception that some TPF agreements are unenforceable if they don’t comply with the Damages Based Agreements Regulations 2013, there are no notable restrictions on such agreements. They could be contrary to the interests of the funded party, be gateways for money laundering or sham litigation, or exploit the successful awards of a large collective of claimants seeking compensation.
On this final point, the proceedings related to the case Mastercard v Merricks, heard by the Supreme Court in 2019, demonstrated the dilemma. The case, which has a class of over 46 million claimants, concerns. A proposed settlement of £200 million by Mastercard which was revealed in early 2025 has suggested that Insowrth Capital stand to gain up to £54.43 million as a return on the funding they have provided, and over £40 million to cover costs. That’s almost half the settlement which could be dissipated by the time the money reaches claimants.
So how do we manage the ‘commercialisation’ of access to justice? The Civil Justice Council’s (CJC) recent interim report covers key issues in this area, including whether litigation funders should be regulated as a form of financial services, the need for more transparency in funding agreements, and how to address potential risks associated with third-party influence in litigation.
How does this link to your applications?
(1) The role of law firms: Successful LFs such as Burford Capital provide the flexible finance that many corporate clients require when pursuing high value litigation that could drag out for months or years. Such LFs also allow law firms to expand their practices and access funds to take on matters which they wouldn’t otherwise be able to finance. From the perspective of creative solutions, consider whether you have provided financial solutions to difficult situations in your personal life, university societies, or your own business. How might that link to your interest in commercial law and the specific practice(s) areas that you’re looking to focus on? Antitrust, intellectual property, and international arbitration are key focus points for litigation.
(2) Anticipating the regulatory landscape: All law firms will keep an eye out on the developing regulations in this area. The CJC’s report has demonstrated the wide range of issues that permeate the TPF industry. The conversation surrounding fee caps will likely prove to be the most controversial and difficult topic . If you have an interest in financiers and funding in a general sense (angel investors, venture capitalists, etc.), litigation funding and the regulations surrounding it could be an excellent link to make to demonstrate both your commercial awareness and interest in law.
(3) Financing a LF: Litigation funding is an extremely difficult business to become involved in but it begs the question. How are such companies financed at their inception? What is the successful financial model in such an inherently risky business? What separates one LF from the next? The answers to these questions may provide an interesting angle to any points in your application regarding debt and/or equity finance in contentious matters and complex commercial litigation. The business of litigation funding is not the business of law firms, and should not be the focus of your training contract applications, but it may be a useful supplement if you are struggling to link your interest to private equity, capital markets, or other traditional major practice areas.
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